The Instruments: Complete Notes (Part B)

Part B examines the three instruments the Act governs, how they differ, bank drafts, ambiguous and incomplete instruments, and maturity. This consolidated note covers Topics 6 to 11.

6. Promissory Note (Section 4)

A promissory note is a written, signed, unconditional undertaking by the maker to pay a certain sum of money only to, or to the order of, a certain person, or to bearer, and is not a bank-note or currency-note. An I.O.U. (a mere acknowledgment), an uncertain sum, a conditional promise and a promise to pay money and deliver goods do not qualify. The maker is the primary debtor. Notes payable to bearer are barred by Section 31 of the RBI Act, and an unstamped note cannot be admitted in evidence even on payment of a penalty.

7. Bill of Exchange (Section 5)

A bill of exchange is a written, unconditional order, signed by the drawer, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to bearer. Section 5 adds that payment on an event certain to happen is not conditional; that a sum including interest, an exchange rate or an acceleration clause is still certain; and that a misnamed or described payee is still certain. These paragraphs apply to notes as well. The drawee is not liable until he accepts; then the acceptor is the principal debtor and the drawer a surety (Section 37).

8. Cheque (Section 6)

A cheque is a bill of exchange drawn on a specified banker and payable only on demand, including the electronic image of a truncated cheque and a cheque in electronic form (inserted in 2002 and recast in 2015). It is never accepted and the bank is not liable to the holder. A post-dated cheque is a bill until its date (Anil Kumar Sawhney v. Gulshan Rai, 1993). Under RBI directions since 1 April 2012, cheques and drafts are valid for three months. Clearing runs through the Cheque Truncation System, with the Positive Pay System for high-value cheques and continuous clearing from 4 October 2025.

9. Comparisons and Bank Drafts

• Note and bill: promise against order; two parties against three; maker liable from the start against drawee liable only on acceptance; no notice of dishonour to the maker; only bills drawn in sets.
• Bill and cheque: a cheque is always on a banker and on demand, never accepted, has no days of grace or stamp duty, can be crossed, enjoys banker protection and is backed by the Section 138 offence.
• Drafts: a demand draft is drawn by one office of a bank on another office of the same bank. Section 85A protects the bank that pays it in due course on an indorsement purporting to be the payee's, and Section 131A applies the crossing provisions to drafts as if they were cheques.

10. Ambiguous and Inchoate Instruments

• Section 17: an instrument that may be construed as a note or a bill may be treated as either at the holder's election, which is final.
• Section 18: if words and figures differ, the words prevail.
• Section 20: a person who signs and delivers a stamped paper, blank or incomplete, gives prima facie authority to complete it up to the stamp; he is liable to a holder in due course for the amount filled in, but others recover only what he intended.
• Blank cheques: the payee may complete a signed blank cheque, and the Section 139 presumption still applies (Bir Singh v. Mukesh Kumar, 2019).

11. Maturity and Days of Grace

Notes and bills with no time stated, or payable on demand, at sight or on presentment, and all cheques, are payable on demand (Sections 19 and 21). "After sight" means after presentment for sight (note) or after acceptance, noting or protest for non-acceptance (bill). Instruments payable at a specified period after date or sight mature on the third day after the expressed due date (Section 22). Periods in months end on the corresponding day, or the last day of the month (Section 23); periods in days exclude the first day (Section 24); and maturity on a public holiday moves to the preceding business day (Section 25).

12. The Topics of This Part

Topic 6: promissory note (Section 4); Topic 7: bill of exchange (Section 5); Topic 8: cheque (Section 6); Topic 9: comparisons and bank drafts (Sections 85A and 131A); Topic 10: ambiguous and inchoate instruments (Sections 17, 18 and 20); Topic 11: maturity and days of grace (Sections 19 and 21 to 25).